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The Impact of Household Capital Income on Income Inequality: A Factor Decomposition Analysis for Great Britain, Germany and the USA

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Author Info
Anna Fräßdorf
Markus M. Grabka
Johannes Schwarze

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Abstract

This paper analyses the contribution of capital income to income inequality in a cross-national comparison. Using micro-data from the Cross-National Equivalent File (CNEF) for three prominent panel studies, namely the BHPS for Great Britain, the SOEP for West Germany, and the PSID for the USA, a factor decomposition method described by Shorrocks (1982) is applied. The factor decomposition of disposable income into single income components shows that capital income is exceedingly volatile and its share in disposable income has risen in recent years. Moreover, capital income makes a disproportionately high contribution to overall inequality in relation to its share in disposable income. This applies to Germany and the USA in particular. Thus capital income accounts for a large part of disparity in all three countries.

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File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.84774.de/diw_sp0104.pdf
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Paper provided by DIW Berlin, The German Socio-Economic Panel (SOEP) in its series SOEPpapers with number 104.

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Length: 24 p.
Date of creation: 2008
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Handle: RePEc:diw:diwsop:diw_sp104

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Keywords: Inequality; capital income; factor decomposition; CNEF;

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Find related papers by JEL classification:
D33 - Microeconomics - - Distribution - - - Factor Income Distribution
I3 - Health, Education, and Welfare - - Welfare and Poverty
F00 - International Economics - - General - - - General

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  1. SOEP based publications
References listed on IDEAS
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  1. Joachim R. Frick & Markus M. Grabka, 2002. "The Personal Distribution of Income and Imputed Rent: A Cross-National Comparison for the UK, West Germany and the USA," Discussion Papers of DIW Berlin 271, DIW Berlin, German Institute for Economic Research. [Downloadable!]
  2. Lerman, Robert I & Yitzhaki, Shlomo, 1985. "Income Inequality Effects by Income," The Review of Economics and Statistics, MIT Press, vol. 67(1), pages 151-56, February. [Downloadable!] (restricted)
  3. Anthony B. Atkinson, 2000. "The Changing Distribution of Income: Evidence and Explanations," German Economic Review, Blackwell Publishing, vol. 1(1), pages 3-18, 02. [Downloadable!] (restricted)
  4. Smeeding, Timothy M & Weinberg, Daniel H, 2001. "Toward a Uniform Definition of Household Income," Review of Income and Wealth, Blackwell Publishing, vol. 47(1), pages 1-24, March. [Downloadable!] (restricted)
  5. Jantti, Markus & Danziger, Sheldon, 2000. "Income poverty in advanced countries," Handbook of Income Distribution, in: A.B. Atkinson & F. Bourguignon (ed.), Handbook of Income Distribution, edition 1, volume 1, chapter 6, pages 309-378 Elsevier. [Downloadable!] (restricted)
  6. Richard V. Burkhauser & Shuaizhang Feng & Stephen P. Jenkins, 2007. "Using the P90/P10 Index to Measure US Inequality Trends with Current Population Survey Data: A View from Inside the Census Bureau Vaults," IZA Discussion Papers 2839, Institute for the Study of Labor (IZA). [Downloadable!]
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  7. Fei, John C H & Rainis, Gustav & Kuo, Shirley W Y, 1978. "Growth and the Family Distribution of Income by Factor Components," The Quarterly Journal of Economics, MIT Press, vol. 92(1), pages 17-53, February. [Downloadable!] (restricted)
  8. Atkinson, A B, 1997. "Bringing Income Distribution in from the Cold," Economic Journal, Royal Economic Society, vol. 107(441), pages 297-321, March. [Downloadable!] (restricted)
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  9. Thomas Piketty & Emmanuel Saez, 2003. "Income Inequality In The United States, 1913-1998," The Quarterly Journal of Economics, MIT Press, vol. 118(1), pages 1-39, February. [Downloadable!] (restricted)
  10. Bound, John & Johnson, George, 1992. "Changes in the Structure of Wages in the 1980's: An Evaluation of Alternative Explanations," American Economic Review, American Economic Association, vol. 82(3), pages 371-92, June. [Downloadable!] (restricted)
  11. Richard V. Burkhauser & Takashi Oshio & Ludmila Rovba, 2007. "Winners and Losers over the 1990s Business Cycles in Germany, Great Britain, Japan, and the United States," Schmollers Jahrbuch : Journal of Applied Social Science Studies / Zeitschrift für Wirtschafts- und Sozialwissenschaften, Duncker & Humblot, Berlin, vol. 127(1), pages 75-84.
  12. Lars Osberg, 1998. "Economic Insecurity," Discussion Papers 0088, University of New South Wales, Social Policy Research Centre. [Downloadable!]
  13. Shorrocks, Anthony F, 1983. "The Impact of Income Components on the Distribution of Family Incomes," The Quarterly Journal of Economics, MIT Press, vol. 98(2), pages 311-26, May. [Downloadable!] (restricted)
  14. Juhn, Chinhui & Murphy, Kevin M & Pierce, Brooks, 1993. "Wage Inequality and the Rise in Returns to Skill," Journal of Political Economy, University of Chicago Press, vol. 101(3), pages 410-42, June. [Downloadable!] (restricted)
  15. Markus M. Grabka, 2007. "Codebook for the $PEQUIV File 1984-2006: CNEF Variables with Extended Income Information for the SOEP," Data Documentation 21, DIW Berlin, German Institute for Economic Research. [Downloadable!]
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  16. Jantti, Markus, 1997. "Inequality in Five Countries in the 1980s: The Role of Demographic Shifts, Markets and Government Policies," Economica, London School of Economics and Political Science, vol. 64(255), pages 415-40, August. [Downloadable!] (restricted)
  17. Peter Gottschalk & Timothy M. Smeeding, 1997. "Cross-National Comparisons of Earnings and Income Inequality," Journal of Economic Literature, American Economic Association, vol. 35(2), pages 633-687, June. [Downloadable!] (restricted)
  18. Shorrocks, A F, 1982. "Inequality Decomposition by Factor Components," Econometrica, Econometric Society, vol. 50(1), pages 193-211, January. [Downloadable!] (restricted)
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